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Ki-Seok Park on Moving into New Markets

An Interview with the Former CEO of Samsung Engineering

Samsung Engineering was founded in 1970 as the first South Korean engineering-design firm for
domestic projects but quickly began a global expansionary campaign. Today, South Korea
accounts for less than 25 percent of Samsung Engineering’s $8.4 billion in revenues—and the
rest of Asia accounts for even less. Since 2000, the Middle East has been Samsung Engineering’s
primary market—which is not surprising because oil, gas, and petrochemical projects are the
company’s primary business.

John Wong, a senior partner and managing director at The Boston Consulting Group, sat down in
2012 with Samsung Engineering’s then-CEO, Ki-Seok Park. At the time, Park told us that
dividing the world into mature markets and emerging markets is less meaningful than
understanding the nuances of each market. Projects in the Middle East tend to be negotiated at
fixed prices. This practice plays to Samsung’s strengths at pricing and managing risks. In the
U.S. market, by contrast, cost-plus-fee contracts allow contractors to put more risks on their
customers. “In all the markets that we serve, our success has been based on our unique
understanding of local conditions, our initiative, and our management capability,” Park said in
the interview.

Samsung Engineering often competes against larger Western competitors, such as Technip and
Saipem, in the engineering, procurement, and construction (EPC) market. While recognizing
their strengths and capabilities, Park said that Samsung brings its own advantages. “The Korean
‘bbali, bbali’ culture of speed and efficiency helps us deliver large projects under deadline, and
Samsung’s high standards and skilled resources allow us to manage complex projects with
minimal rework and error,” he explained.

Edited excerpts of the interview follow.

How global is Samsung Engineering?

In a recent ranking of global contractors by the Engineering News-Record, we were ranked


fifteenth based on overseas sales, compared with ranking thirty-fourth in 2011. More than 75
percent of our revenues were generated overseas in 2011. We are currently working on projects
in 20 countries. About 20 percent of our workforce is from outside Korea, coming from 34
different countries.

We have been especially active in emerging markets undergoing industrialization and


urbanization. Southeast Asia, India, and Mexico all have rich natural resources and are enjoying
rapid economic development. We have also aggressively expanded in the Middle East, which has
the ability—due to high oil prices—to finance large infrastructure and energy projects. To
continue the growth momentum, we are trying to expand into other promising markets rich in
resources such as CIS [Commonwealth of Independent States] nations, South America, and
Africa.

We talk about a two-speed world: slow growth in many mature markets, with strong
growth in emerging markets. How does this apply to Samsung Engineering?

For our company, it makes more sense to create differentiated strategies for our clients, products,
and businesses based on regional and national characteristics rather than to divide the world into
high-growth and mature markets.

In the Middle East, fixed-price contracts are common, and we have been successful winning and
managing business in that environment. We know how to price the projects and manage the
risks. We broke into the market with a small project in Saudi Arabia in 2001. Our success has
come through customer trust, world-class performance, and localization, and it has resulted in
close to $12 billion in project awards there. We have been able to advance into other nations by
building on our accomplishments in Saudi Arabia, such as the United Arab Emirates, Bahrain,
Iraq, and Algeria.

In the U.S., most projects are governed by cost-plus-fee contracts. Many of our natural
advantages—a flexible workforce and strength in pricing—are less important there, and we do
not have long relationships with contractors. Consequently, we have needed to establish new
business practices and business models. Since labor costs are so high in the U.S. we need to
ensure that we have efficient labor-management practices and long-term partnerships with
contractors.

The boom in oil-sand and shale-gas projects has created new opportunities in North America that
we are trying to pursue. We created Samsung Engineering America in 2008 for the purpose of
strengthening our technical knowledge and expanding our EPC capability.

In all the markets that we serve, our success has been based on our unique understanding of local
conditions, our initiative, and our management capability. The two-speed world is more of a
peripheral issue for us.

What is your strategic focus in each of these markets?

We have a different focus in each market. The Middle East presents a large number of projects,
but competition is fierce. We have tried to strengthen our relationship with existing customers
there in order to win repeat business. In Saudi Arabia, we have actively taken part in
Saudization, the national policy of job creation in the private sector. Finally, we are diversifying
into areas that aren’t focused on hydrocarbon, such as power generation and water treatment.

South America is a challenging but promising market. Domestic-content laws there require the
use of local equipment and supplies. This makes bidding and managing costs more challenging
since we know we can source components more economically outside of South America. We
assume all competitors face the same issue. Nevertheless, we have focused on resource-rich
countries, such as Brazil and Bolivia, and we recently won an assignment for a fertilizer plant in
Bolivia.

In the CIS nations, we have used a hub-and-spoke approach. This means that we maintain a main
office in one country and try to serve all the surrounding countries from that hub. For CIS, our
main office is in Moscow.

Sub-Saharan Africa has tremendous resources and growth potential but is lacking both financial
capacity and business experience. Despite these challenges, we are strategically investing our
time and resources to position ourselves for future opportunities in the region.

Do you require different business models and organizational structures in different


markets? Have you taken a different approach in the Middle East than, say, the U.S.?

From one market to the next, our external organizational structures and operations look similar.
However, there are internal differences in business practices and human resources because our
clients have different business styles and contracting systems.

As a leader, how much time do you spend overseas? How much time do you spend in
mature markets like the U.S. and Europe, and how much time do you spend in the Middle
East or Latin America?

When I was in charge of sales, I spent more than half the year overseas, mostly in emerging
markets such as Southeast Asia, Mexico, and the Middle East. Since becoming CEO, I travel
about three months of the year to key markets such as the Middle East, North Africa, and South
America. I visit advanced markets, including the U.S., twice a year.

Do you try and maintain a common culture across the globe, or do you encourage local
variation? What aspects of culture are nonnegotiable, and what can be modified? How do
you balance the dueling needs for integration and localization?

The Samsung Group follows the same values around the world. Our group values—people,
excellence, change, integrity, and co-prosperity—are universal and help drive a common vision
and code of conduct.

We also aim to be a local company within each market we serve, respecting cultural or religious
differences and diversity. We adjust our working styles, for example, to accommodate daily
prayers. We call this balance between integration and localization glocalization.

Samsung Engineering also has its own distinct values. One is continuous challenge, which is
moving on to achieve targets with passion and persistence. A second is global citizenship, which
is realizing global standard management by understanding and utilizing diversity and securing
global capabilities. A third is creative convergence, which is creating new future values through
insight, communication, and cooperation.
Talent is a big global issue these days. What are the challenges in Korea? Do the same
issues exist in the more mature markets? How do you encourage talent mobility between
the fast- and slow-growing markets?

We are not immune from the challenges of securing and managing talented workers. In our
industry, talent is one of the key ways that companies compete. It is especially important to
secure experienced workers in new markets and new business areas. In particular, the U.S.
petrochemical market is undergoing structural changes as shale gas exploration and investment
take off. This is creating labor shortages throughout the business.

To reduce the gap in talent between advanced and emerging markets and overcome cultural
differences, our engineers in Korea are conducting projects with engineers from the U.S. and
India. We are planning to continuously expand labor exchanges between our main engineering
hubs in these three locations.

The days of exporting what works in developed markets to new markets are over. What
can Samsung Engineering teach leading Western companies about operating in emerging
and developed markets? What are the strengths of Samsung Engineering in terms of talent,
ideas, and product?

Fluor, Technip, and Saipem and other companies from mature markets possess vast experience,
technology, business capability, and stable business portfolios. We try to emulate their best
practices.

At the same time, as a relatively young company, Samsung Engineering has acquired some key
competitive differences. First, we try to have a thorough customer-oriented mindset. We keep
our promises with customers and deal with them on the basis of diligence, sincerity,
responsibility, endless innovation, and passion. Second, we are more likely to accept and manage
risks in the management of projects. This has helped us earn the trust of customers and solidified
our reputation.

Third, we have expanded upstream into offshore, gas-oil separation plants, liquefied natural gas,
power generation, mining and metallurgy, and front-end engineering design. In October we
formed a joint venture with Amec, a leading engineering firm with extensive experience in
offshore projects. We intend to strengthen our core competence in this growing market. We are
working hard to establish a more stable business structure throughout the areas focused on and
beyond hydrocarbon. This makes us stronger and more competitive across markets.

What are the core strengths of Korean companies in the global EPC market? Do you view
Chinese and Indian players as threats? What is your strategy to compete against them?

Starting in the 1970s, Korean companies served as design and construction subcontractors for
leading companies. In the 1980s, they began transforming themselves into comprehensive EPC
companies with a global mindset. In the 2000s, our capabilities caught up with the leading
European, Japanese, and U.S. companies.
Korea has outstanding human resources. We have a strong zeal for education. About 500,000
Korean students graduate from college every year, and they represent the foundation of growth
for Korean companies.

The Korean “bbali, bbali” culture of speed and efficiency helps us deliver large projects under
deadline, and Samsung’s high standards and skilled resources allow us to manage complex
projects with minimal rework and error. When we make a commitment to our clients, we keep it.
We have a can-do spirit.

We deploy a creative and holistic way of thinking about projects. We try to flexibly manage and
allocate both human and physical resources from the start to the end of a project to maximize our
performance. Our approach is contrary to that of Western companies, which tend to value
functional specialties.

Currently, Chinese and Indian companies are not strong competitors for large-scale projects in
the global EPC market, especially for the sophisticated energy segment. That will change over
the mid- to long-term, however.

As a leader, how do you make connections with your people in markets very different from
your home market?

We regularly hold events where foreign executives and staff and Korean staff can mingle
together. Whenever I go on a business trip abroad, I visit global offices and sites and directly
communicate through a meeting. I also utilize IT infrastructure such as video conferencing,
video chats, and a CEO blog to communicate virtually. Most importantly, as a CEO, you need to
be honest, demonstrate that you understand others’ points of view, and try to reach consensus.

How do you manage the expanding universe of stakeholders, especially in markets in which
state support for local companies is strong?

Our localization strategy takes into account the role of stakeholders and their needs and
expectations. For example, one of the main concerns for Saudi Arabia is its rising unemployment
rate among young adults. To address this issue, we recently opened a $100 million engineering
complex, the Samsung Naffora Techno Valley, which will benefit the country by creating jobs
and transferring skills and knowledge specifically to Saudi engineers.

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